Highlights

We attended Star’s 1QFY13 briefing chaired by the Executive Director, Datuk Seri Wong Chun Wai, and the management team. Below are the key takeaways.

Seasonally weak… 1Q’s soft results were due the seasonal weakness coupled with the uncertainty arising from the General Election. Earnings continued to be affected by startup costs of their new business ventures i.e. LiTV, Capital FM, etc. Management will continue to optimise its resources to better control expenses.

Eventful year… Star’s 64% subsidiary, CityNeon, is targeting to breakeven this year. We understand that the event management division is close to securing a sizable project which will help recover its earnings.

Will Ocision be a hit?… The recent acquisition of Ocision will complement Star’s “Classified” segment which has been losing ground to online sites. Management believes that Ocision is “hungry” and ambitious to be the next “iProperty” or “Jobstreet”.

Better content… Management will continue to invest in content creation. Articles published will be more balanced and value-added with opinions instead of the normal reporting. We may be even looking at international collaboration of their content.

Roshan on board… Star has roped in Mr. Roshan Thiran, previously CEO of Leaderonomics, as the Director of Operations. He will help to fill the managerial vacuum left by the previous MD Mr. Ho Kay Tat.

Newsprint update… Star’s newsprint inventory is -16 months at a holding cost of ~US$650/MT.

Risks

Weak Adex growth; High newsprint cost; Threat of new players; Depreciation of RM vs US$; and Regulatory risk.

Forecasts

Unchanged.

Rating

HOLD

We are positive on Star’s plan to remain relevant on the ever changing media landscape. However in the intermediate term, we see its earnings being impacted by the gestation period of new business ventures and cost optimisation plan. Hence, we are reiterating our HOLD call on the company.

Positives: (1) Strong recovery in the global economy; (2) Strong domestic consumption which reinforces business confidence to spend on Adex. (3) Quicker gestation period for its new business venture.

Negatives: (1) Weak domestic consumption; (2) Continued deterioration in the Euro debt crisis which dampens business confidence.

Valuation

TP maintained at RM2.77 based on required dividend yield of 6.5%. We believe that the company has sufficient cash to maintain its dividend payment even with weaker earnings.

Source: Hong Leong Investment Bank Research - 11 Jun 2013